July, 2015

In our series we’ve been looking at easy ways for you to reduce the amount of tax that you pay. As well as using legitimate means to cut your tax bill, making sure you are organised and that you file your tax return on time can also help trim the amount you owe HMRC.

Keep reading to find out how paying your tax bill on time can save you hundreds of pounds.

52 Ways to Save Tax – Part 13 : Pay your tax on time

If you have to submit a self-assessment tax return then there are deadlines for sending in your information. These are:

Paper tax return – midnight on 31 October

Online tax return – midnight on 31 January

For example, for the tax year that ended on 5 April 2015 you have to submit your paper tax return by 31 October 2015 or your online tax return by 31 January 2016.

You also have to pay any tax that you owe by the 31 January deadline.

If you don’t file your tax return on time, you will face a penalty. You’ll get a penalty of £100 if your tax return is up to 3 months late and you will have to pay more if it’s later, or if you pay your tax bill late.

If you take longer to submit your return you can face a daily £10 penalty – which is capped at 90 days, or £900 – as well as interest on the amount outstanding.

HMRC figures show that 890,000 people missed the 31 January 2015 deadline for submitting their self-assessment tax returns, immediately adding £100 to the bill of almost a million people.

In some cases HMRC will waive the penalty. Reasonable excuses for failing to meet the submission deadline include:

the death of a partner

an unexpected stay in hospital

issues with the online HMRC service

fire

unpredicted postal delays

computer or software failure when preparing your tax return

In these cases HMRC may waive your penalty. Reports in May 2015 suggested that HMRC were waiving more of the penalties than normal if people provided a reasonable reason why they did not submit their tax return on time. However, simply submitting late may still see you pay at least £100 more than you have to.

Paying a surcharge on your VAT

It’s not just your income tax bill that may go up if you don’t pay on time. If you’re a VAT registered business then you can also face penalties if you don’t pay your VAT by the deadline.

HM Revenue and Customs (HMRC) record a ‘default’ if:

they don’t receive your VAT return by the deadline

full payment for the VAT due on your return hasn’t reached their account by the deadline

If you default you may enter a 12 month ‘surcharge’ period and if you default again during that period you could face a penalty.

For example, if you have a turnover of less than £150,000 you can face a 2% VAT surcharge if you default three times during a 12 month period.

You can also face a £400 fine for sending in a paper VAT return unless HMRC has told you that you are exempt from online submission.

All this means one thing: if you send your tax returns on time and make payments when they are due your tax bill will end up being lower.

One of the major announcements in George Osborne’s 2015 Budget concerned the way in which savings interest would be taxed from April 2016. There are going to be significant changes to the tax regime on cash savings that will benefit the vast majority of taxpayers in the UK.

Keep reading to find out how putting you money in savings can reduce your tax bill and save you hundreds of pounds a year.

52 Ways to Save Tax – Part 12 : Put your money in a savings account

If you have some of your savings in a High Street savings account then you could be set to benefit from one of the new measures announced by the Chancellor in his 2015 Budget speech.

From April 2016, every basic rate taxpayer in the UK will be able to earn £1,000 in savings interest each year without having to pay any tax. Higher rate taxpayers will be able to earn up to £500 in savings interest.

The change is set to help around 28 million savers avoid tax on their money. It means that for around 95 per cent of savers, all the interest they receive on their savings will be paid without any tax being deducted – effectively giving a 20 per cent boost.

At present, banks and building societies deduct the basic tax rate of 20 per cent before paying your interest. If you don’t pay tax then you can register to receive your interest tax-free (using a R85 form) while if you’re a higher or additional rate taxpayer then you have to declare interest on your tax return and pay even more tax.

At present, if you are a basic rate taxpayer and you have £20,000 in a High Street savings account paying 2 per cent interest you would only earn £320 a year in interest. A higher-rate taxpayer would earn £240 and a top-rate taxpayer £220.

When the changes come into force in April 2016, you would earn £400 in interest.

The changes from April 2016

From the start of the tax year – April 6, 2016 – banks and building societies will stop automatically deducting interest from your savings. All the interest you receive will be paid tax-free.

If you earn below £16,800 a year you won’t have to pay any tax on savings interest. If you earn between £16,801 and £42,700 you will be allowed to earn £1,000 in interest without any tax being deducted.

If you earn between £42,701 to £150,000 you will have a £500 allowance and if you earn more than this you will have to pay tax on your savings interest.

If you are a basic taxpayer it effectively means that you can have up to around £70,000 in an easy-access savings account (assuming a current interest rate of around 1.35 per cent) and earn itnerest without paying any tax.

By investing more of your cash in savings accounts from April it means that you will avoid the 20 per cent deduction and help you to reduce your tax bill.